Ebitda margins to remain firm in Q3, says CRISIL

Despite continuing pressures on demand growth, Ebitda (earnings before interest, tax, depreciation and amortisation) margins of Indian companies for the quarter ended December were likely to remain firm, CRISIL Research said in a note on Wednesday.

“Ebitda margins would be supported by increasing realisations and softening prices of commodities such as coal, rubber and cotton,” said Mukesh Agarwal, president, CRISIL Research. “In addition, stringent cost control by corporates across sectors would further cushion margins,” he added.

Ebitda margins of companies excluding banks and oil and gas companies are estimated to improve by 10-30 basis points (bps) year-on-year during the quarter. At 11-13 per cent, revenue growth is expected to be muted, CRISIL said.

“We believe margin expansion only on the back of an increase in realisations, rupee depreciation and cost control is not sustainable and an increase in volume growth will be necessary for improvement in profitability,” said a note by the ratings agency.

However, overcapacity is expected to hit the margins of hotels and shipping companies and high input costs would affect profitability in the paper and petrochemical segments. Ebitda margins of sugar, tyre, cement and airline companies would see expansion of about 250 bps year-on-year, owing to higher realisations, said Prasad Koparkar, senior director, CRISIL Research. Lower input costs would result in higher margins for power generation, textile and tyre companies, he added.

For the quarter ended December, volume growth is estimated to be muted due to weak consumer sentiment and continued macroeconomic pressures, CRISIL Research said. In the quarter ended September, India’s economy grew 5.3 per cent compared to a year earlier. It is expected this financial year, the economy would record the lowest annual growth in a decade.